Q2 2024 Dave Inc Earnings Call
Joining us today are Dave <unk> CEO, Mr. Jason woke and the Companys CFO, Mr. Kyle Baumann.
Speaker Change: By now everyone should have access to the second quarter 2024 earnings press release, which was issued yesterday. The release is available in the Investor Relations section of Dave's website at H T. T. P. S colon slash slash investors that Dave Dot Com. In addition, this call will also be available for webcast replay on the company.
Speaker Change: Website.
Speaker Change: Following management remarks, we'll open the call for your questions.
Speaker Change: Certain comments made on this conference call and webcast webcast are considered forward looking statements under the private Securities Litigation Reform Act of 1095. These forward looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward looking.
Speaker Change: Statements.
Speaker Change: These forward looking statements are also subject to other risks and uncertainties that are described from time to time in the companys filings with the SEC.
Speaker Change: Do not place undue reliance on forward looking statements, which are being made only as of the date of this call except as required by law. The company undertakes no obligation to revise or update any forward looking statements.
Speaker Change: The company's presentation also includes certain non-GAAP financial measures, including adjusted EBITDA as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules, you'll find reconciliation charts and other important information.
<unk> in the earnings press release, and form 8-K furnished to the SEC I would now like to turn the call over to Dave CEO, Mr. Jason Wilke.
Okay.
Speaker Change: You may begin.
Speaker Change: Okay.
Speaker Change: Thank you Hey, good morning, everyone.
Jason Wilke: We continued to outperform expectations in the second quarter, delivering 31% revenue growth and materially improved profitability compared to the year ago period.
Speaker Change: This marks our third consecutive quarter of accelerating year over year revenue growth, which we accomplished while managing to reduce operating expenses for the fifth consecutive quarter.
Speaker Change: This resulted in achieving another record quarter of adjusted EBITDA.
Speaker Change: Given our performance year to date and strong outlook for the remainder of the year, we are raising the bottom end of our revenue guidance and increasing adjusted EBITDA guidance for 2024.
Speaker Change: This upward revision is further supported by continued growth in our monthly transacting member base, which reached two 3 million members.
Turning to the second quarter I'd like to share more about our continued progress in executing on our growth strategy. This includes efficiently acquiring new members engaging them through extra cash and deepening our relationships to the Descartes.
Speaker Change: Our commitment to efficient member acquisition is paying off as we continued to reduce marketing spend when compared to a year ago periods, yet still expand our multi transacting member base as I'll discuss in more detail in a moment.
Speaker Change: In the second quarter, we acquired 3% fewer members relative to the year ago period, but with nearly 30% mass marketing investment.
Speaker Change: This was driven by a 26% year over year decrease in cost of $15 as we continued to optimize our marketing ROI and pursuit of profitable growth.
Speaker Change: On a sequential basis, we ramped up marketing spend by 18% to capitalize on the seasonal demand pattern for extra cash while reducing cost by 7% at this higher level of investment.
Speaker Change: As we navigate an election year, we are closely monitoring as potential impact on customer acquisition costs.
Speaker Change: We didn't observe election impacting Q2, nor have we thus far in Q3, we will remain disciplined as the member nears to ensure our marketing investments achieve or exceed our internal return hurdles.
Speaker Change: The environment for member acquisition has remained constructive in Q3, which adds to our confidence in sustaining efficient growth and higher levels of scale.
Speaker Change: The second pillar of our growth strategy is to drive greater MTM engagement, while using our extra cash product as the primary entry point of our member journey.
Speaker Change: This focus has yielded impressive results with MTN, the growing 18% year over year to a record $2 3 million members.
Speaker Change: Our focused efforts to strengthen new member conversion existing member retention and dormant member reactivation contributed meaningfully to this growth.
Speaker Change: Given the size and consistent growth of our member base as well as how our product capabilities have been expanding we have been evaluating additional potential sponsor bank since late last year in an effort to diversify our key partner relationships.
Speaker Change: Dave is an attractive partner opportunity for the many reputable unqualified sponsored banks in the market given our scale and growth trajectory.
Speaker Change: These discussions have been constructive thus far and we will report back when we have material updates on our progress.
Relative to the year ago period, but with nearly 30% mass marketing investment.
Speaker Change: Extra cash delivered another strong quarter with originations, reaching $1 2 billion originations.
This was driven by a 26% year over year decrease in cash of $15 as we continued to optimize our marketing ROI and pursuit of profitable growth.
Speaker Change: Originations grew 37% year over year, and 13% sequentially driven by our cash AI underwriting engine and reflecting strong continued demand for extra cash coming out of the seasonally softer tax refund season in Q1.
On a sequential basis, we ramped up marketing spend by 18% to capitalize on the seasonal demand pattern for extra cash while reducing cost by 7% at this higher level of investment.
Speaker Change: Despite the solid growth our net receivables portfolio totaled just 128 million at quarter end.
As we navigate an election year, we are closely monitoring as potential impact on customer acquisition costs.
Speaker Change: We believe this highlights the short duration high velocity nature of our product, which allows us to serve a vast number of everyday Americans without the need for a capital intensive balance sheet.
While we didn't observe election impacting Q2, nor have we thus far in Q3, we'll remain disciplined as November nears to ensure our marketing investments achieve or exceed our internal return hurdles.
Speaker Change: <unk> enables us to expand access to liquidity for our members and increased average disbursement amounts without compromising credit performance.
The environment for member acquisition has remained constructive in Q3, which adds to our confidence in sustaining efficient growth at higher levels of scale.
Speaker Change: In Q2, we continued to improve our 28 day delinquency rates of 2.03% down 80 basis points year over year.
Speaker Change: This equates to 28% improvement in credit performance over a period, where we accelerated extra cash origination volume growth for the third consecutive quarter.
The second pillar of our growth strategy is to drive greater MTM engagement, while using our extra cash product as the primary entry point of our member journey.
Speaker Change: We also rolled out a new underwriting model throughout the second quarter, which further optimizes the data used to manage credit risk within our cash AI underwriting engine.
This focus has yielded impressive results with MTM to growing 18% year over year to a record $2 3 million members.
Our focused efforts to strengthen new member conversion existing member retention and dormant number reactivation contributed meaningfully to this growth.
Speaker Change: Credit performance has remained strong thus far in Q3, which we expect to continue in part because of the full quarter's benefit from this new model.
Given the size and consistent growth of our member base as well as how our product capabilities have been expanding we have been evaluating additional potential sponsor bank since late last year in an effort to diversify our key partner relationships.
Speaker Change: The third and final pillar of our growth strategy is to foster deeper member relationships through Dave card engagement.
Speaker Change: We believe offering quicker more cost effective extra cash transfers of the Dave card is an efficient way for us to drive trial with the <unk> card.
Speaker Change: This trial is an important step in building the trust required to win direct deposits, which can generate five to six times higher bank <unk> relative to non data users.
Speaker Change: Our Dave card continue to demonstrate strong performance with spending volume climbing, 28% year over year to reach $388 million in the second quarter.
Speaker Change: There is an untapped potential to further elevate this metric as we strategically incentivize direct deposit adoption.
Please note we are no longer reporting out on average transaction per MTM as we believe Dave card spending per MTM, which can be calculated from our existing disclosure is also a sufficient proxy for member engagement and our banking product.
Speaker Change: Our combined efforts in extra cash Dave card and subscriptions yielded a strong 11% year over year increase in <unk> during the second quarter due to improvements in both extra cash engagement and monetization as well as growth in <unk>.
Speaker Change: Sequentially <unk> increased 7% from Q1 as extra cash <unk> normalized coming out of a tax refund season, where typically experienced a seasonally lower demand for extra cash.
Speaker Change: I am proud of the positive impact we have had on our members' financial lives as well as our <unk> team, who remains dedicated to throw in the majority of Americans poorly served by incumbent banks, including those early in their banking journey and those living paycheck to paycheck.
Speaker Change: Our strategic focus remains on increasing customer value expanding our member base and leveraging our disruptive technology to drive operational efficiency.
Speaker Change: We look forward to delivering exceptional value to our members and shareholders as we further solidified <unk> position as a premier banking solution for everyday Americans.
Speaker Change: With that I will turn the call over to Kyle and take you through our financial results Kyle.
Kyle: Thank you and good morning, everyone.
Kyle: Jason highlighted we continued to demonstrate the strength and scalability of our business during the second quarter, where our results represent new high watermarks across most all key metrics.
Kyle: We achieved substantial operating leverage by accelerating revenue growth and remaining disciplined with our fixed cost base, which we believe has been further supported by our internally developed cash AI underwriting engine and our AI enabled tap called <unk>.
Kyle: As you May recall, we raised our full year adjusted EBITDA guidance during the first quarter based on our strong performance in that period during.
Kyle: During the second quarter, we continued to execute well, enabling us to once again raise adjusted EBITDA guidance for the full year.
Speaker Change: Q2 revenue reached $80 1 million, representing a 31% year over year increase.
Speaker Change: This was fueled by 18% growth in MTS and <unk> expansion of 11%.
Speaker Change: New member acquisition remained efficient, allowing our marketing dollars to go farther while improved retention and reactivation further boosted our MTN base.
The <unk> increase was due to both increased extra cash utilization as well as stronger engagement with the data card.
Speaker Change: non-GAAP variable profit in Q2 increased 57% on a year over year basis to $51 8 million, representing a 65% margin relative to GAAP revenue up approximately 1100 basis points from Q2 of last year.
Speaker Change: Our sustained improvements to variable margin have been driven largely by the continued optimization of our cash AI underwriting engine, which has ingested the credit performance of over 105 million unique extra cash transactions since our inception.
Speaker Change: We believe this continues to expand the competitive advantage, we have in evaluating portfolio risk.
Speaker Change: The resulting improvement in credit loss experience has also allowed us to reduce loss rates, while increasing the revenue we generate per extra cash origination.
Speaker Change: Additionally, our variable margin performance in Q2 was bolstered by the progress we made in 2023 and optimizing payment processing costs and a key vendor contract we renegotiated in Q4 of last year.
Speaker Change: Now turning to second quarter operating expenses.
Speaker Change: Our provision for credit losses improved decreasing approximately 9% year over year to $14 4 million, while extra cash originations grew by 37% over that time.
Once again raise adjusted EBITDA guidance for the full year.
Q2 revenue reached $80 1 million, representing a 31% year over year increase.
Speaker Change: As a percentage of extra cash originations the loss provision fell to one 2% from one 8% in the prior year.
This was fueled by 18% growth in MTS and <unk> expansion of 11%.
Speaker Change: We believe these positive results underscore the effectiveness of our cash AI underwriting system.
Member acquisition remained efficient, allowing our marketing dollars to go farther while improved retention and reactivation further boosted our MTM base.
Speaker Change: As Jason noted credit performance in Q3 remained strong thus far which we expect to persist going forward.
Speaker Change: Despite the conviction we have in our credit performance, we anticipate our provision for credit losses to increase in Q3, and Q4 relative to Q2, both in absolute dollars and as a percentage of extra cash originations due to the calendar dynamics related to the day of the week on which the next two quarters and tip.
The <unk> increase was due to both increased extra cash utilization as well as stronger engagement with the Dave card.
non-GAAP variable profit in Q2 increased 57% on a year over year basis to $51 8 million, representing a 65% margin relative to GAAP revenue.
Speaker Change: <unk> extra cash disbursements are highest over the weekend days, which causes the extra cash receivables to peak on Mondays and Tuesdays extra.
Up approximately 1100 basis points from Q2 of last year.
Our sustained improvements to variable margin have been driven largely by the continued optimization of our Kashi I underwriting engine, which has ingested the credit performance of over 105 million unique extra cash transactions since our inception.
Extra cash settlements are typically highest on Thursdays and Fridays, which causes the receivables balance to trough on Fridays.
Speaker Change: Given that Q3, and Q4 and on a Monday and Tuesday, respectively. We expect higher receivables balances at those quarter end, even after adjusting for our expectation of continued growth in extra cash originations.
We believe this continues to expand the competitive advantage, we have and evaluating portfolio risk.
Speaker Change: The higher expected receivables balance will likely drive a higher reserve for Unrecoverable advances, resulting in a correspondingly higher provision for credit losses.
Speaker Change: Staying on the topic of credit performance, it's important to understand how our 28 day delinquency rate develops into a charge off rate, which is different for extra cash relative to other financial products that are revolving in nature or paid off in multiple installments.
Speaker Change: Extra cash receivables are charged off for accounting purposes, and instances, where they remained uncollected for 121 days since the disbursement date for.
Speaker Change: For example, the most recent quarterly vintage that has fully developed into a 121 or more days since disbursement is Q4 of 2023.
The 28 day delinquency rate for that vintage was $2, one 9% and the ultimate static pool charge off rate for that same quarterly vintage was 144%, which excludes the double digit percentage of recoveries, we typically generate after the point of accounting charge off.
Speaker Change: Assessing charge offs relative to the gross receivables balance may makes sense for financial products, which are evolving or are those with multiple installments. We believe this approach can be misleading for our products such as extra cash which involved a single repayment.
Speaker Change: The single repayment model used for extra cash implies that all receivables, which are paid fallout of the gross receivables balance, whereas in the case of revolving or installment based products. The remaining principal would persist within the gross receivables balance this should help us clarify our view that evaluating static pool credit performance as a more rely.
Speaker Change: Irbil way to track the progress, we continue to make and optimizing our credit risk management and portfolio economics processed.
Speaker Change: Processing and servicing costs in Q2 increased 8% year over year to $7 8 million compared to $7 2 million in the year ago period.
Speaker Change: However, as a percentage of origination volume these costs improved to <unk>, 7% from 8% demonstrating another aspect of our operating efficiency as originations increased 37% over that same period.
Advertising and marketing costs decreased approximately 28% year over year to $10 7 million compared to $15 million in the prior year period, as we were able to achieve our MTM growth goals at lower levels of spend.
Speaker Change: This efficiency is reflected in the 26% year over year decrease in CAC to $15.
Speaker Change: We anticipate increasing marketing investments in Q3 to capitalize on the strong demand, we're experiencing and the attractive LTV to CAC returns, we're generating on those investments.
Speaker Change: Now looking at compensation and head count.
Our compensation related expenses grew by 2% to $24 5 million in Q2 from $23 9 million in the prior year period.
Speaker Change: However, as a percentage of revenue compensation expense declined to 31% from 39% further underscoring the operating leverage inherent in our business model, resulting from the investments that we've made in our technology platform.
Speaker Change: Other operating expenses decreased approximately 16% to $17 million in the second quarter from $28 2 million in the year ago period, largely due to a $4 4 million legal settlement related expense in the year ago period. Excluding this impact other operating expenses grew modestly.
Speaker Change: As a result of overall business growth.
Speaker Change: GAAP net income for the second quarter improved to $6 4 million compared to a GAAP net loss of $22 6 million in the year ago period.
Speaker Change: Beginning this year, we started disclosing adjusted net income or loss, which adjusts our GAAP net income or loss for stock based compensation changes in fair value of certain noncash liabilities as well as any onetime gains or losses, such as the $33 million gain on the discounted repurchase of the F. T X convertible note dirt.
Speaker Change: The first quarter.
Speaker Change: With that context, adjusted net income for Q2 was $13 7 million compared to an adjusted net loss of $15 8 million in the second quarter of 2023.
Speaker Change: Adjusted EBITDA for the second quarter of 2024 was $15 2 million compared to an adjusted EBITDA loss of $13 1 million during the prior year period.
Speaker Change: We continue to attribute this improvement to a combination of revenue growth margin expansion cash efficiency and improved operating leverage.
Speaker Change: Our consistent execution has driven adjusted EBITDA profitability for three consecutive quarters with a 15% sequential increase from Q1.
Speaker Change: Looking ahead, we expect to continue to grow adjusted EBITDA profitability, though the trajectory may be non linear as we plan to opportunistically make marketing investments and as the provision for credit losses increases in the back half of the year given quarter end timing dynamics I mentioned a moment ago.
Speaker Change: Now turning to the balance sheet.
Speaker Change: As of June 30th we had approximately $89 7 million of cash and cash equivalents marketable securities investments and restricted cash compared to $101 5 million as of the end of last quarter.
Speaker Change: The decrease in cash was driven by an increase in advance receivables outstanding at quarter end due to higher extra cash originations in the period.
Speaker Change: As of the end of the quarter, our net receivables balance was $127 8 million an increase of approximately $22 8 million sequentially.
Speaker Change: It's important to think about this net receivables balance relative to the $1 $2 billion of origination volume during Q2 as we believe this underscores our ability to grow extra cash originations capital efficiently given the short duration and high velocity of the portfolio.
Speaker Change: The amount drawn on our credit facility remained at $75 million as of the end of Q2 as we continued to rely on our balance sheet cash during the second quarter to fund extra cash originations versus our credit facility.
Speaker Change: Overall with our strong balance sheet. We continue to believe we have ample liquidity to execute on our growth plan going forward.
And now turning to our guidance.
Speaker Change: Raising the bottom end of our full year 2020 for revenue guidance by $5 million to a range between $310 million and $325 million representing growth of 20% to 25% compared to the full year of 2023.
Speaker Change: With regards to profitability, we are raising our full year adjusted EBITDA guidance for the second consecutive quarter to a range between $48 million to $50 million.
And to Opportunistically make marketing investments and as the provision for credit losses increases in the back half of the year given quarter end timing dynamics I mentioned a moment ago.
Speaker Change: This compares to the guidance, we provided last quarter of $30 million to $40 million and our original guidance at the start of the year of 25% to $35 million.
Now turning to the balance sheet.
As of June 30th we had approximately $89 7 million of cash and cash equivalents marketable securities investments and restricted cash compared to $101 5 million as of the end of last quarter.
Speaker Change: Overall, our outlook remains positive and we believe we are well positioned for continued success.
Speaker Change: And with that I'll hand, it back over to Jason to conclude our call.
The decrease in cash was driven by an increase in advance receivables outstanding at quarter end due to higher extra cash originations in the period.
Jason Wilke: Thanks Kyle.
Jason Wilke: Our strong performance this quarter reinforces the continued positive trajectory of our company I am confident that our team will continue to drive growth and achieve new milestones in 2024 and beyond operator, we can now open the call for questions.
As of the end of the quarter, our net receivables balance was $127 8 million an increase of approximately $22 8 million sequentially.
Speaker Change: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: It's important to think about this net receivables balance relative to the $1 $2 billion of origination volume during Q2 as we believe this underscores our ability to grow extra cash originations capital efficiently given the short duration and high velocity of the portfolio.
Speaker Change: One moment, our first question.
Speaker Change: And our first question will be coming from Devin Ryan of citizens JMP. Your line is open Devin.
The amount drawn on our credit facility remained at $75 million as of the end of Q2 as we continued to rely on our balance sheet cash during the second quarter to fund extra cash originations versus our credit facility.
Got it. Thanks, so much good morning, James Good morning, how are you doing.
James: Oh, okay well good.
Devin Ryan: Got it.
Good.
Speaker Change: Obviously really nice step up in extra cash volume this quarter.
Speaker Change: 13% sequentially, 37% year over year.
Speaker Change: No there can be a seasonal bump in the second quarter, but it looks like this was driven by both more originations and higher average advances so great to get just a little more color around the trends youre seeing with your customer base right now and then more broadly.
The ability and comfort to take up the average advance size higher from here.
Speaker Change: Yeah.
Speaker Change: Devin this is Kyle thanks.
Speaker Change: Thanks again for joining the call I'd say overall, we're feeling really good just about the overall demand dynamics that we're seeing I think as you can see in our customer acquisition costs were at multi year lows. Despite the ramp up in marketing spend sequentially. We're also seeing really favorable trends with respect to.
Speaker Change: Existing member retention and reactivation of dormant customers. So I think it's just overall the demand patterns.
Speaker Change: Are looking really solid at this point and gives us a lot of confidence going into the second half of the year.
Speaker Change: In terms of you know.
Speaker Change: Overall kind of ability to increase.
Speaker Change: Origination size and therefore monetization I'm moving forward I think we we feel very comfortable that we still have room to run there we rolled out a new model in the second quarter that both allows us to ramp up.
Speaker Change: Average advance size as well as a lower some are our loss rate performance and we're going to continue to lean into that in the second half and field.
Speaker Change: We feel that there is further upside there as we move through the rest of the year.
Speaker Change: And Devin just out of that real quick we're able to do this because of the high velocity nature of the product as you know the average amount people use extra cash for us around 10 days and so we're able to test and learn on those new models. So rapidly that we can gain a lot of confidence so quickly compared to traditional credit providers that have to wait a long time on the vintages two two.
Speaker Change: <unk>.
Speaker Change: Alright terrific. Thank you and then a question on the CFPB proposal.
Bounce in July you, obviously issued a press release around your positioning through we'll have to see how it all plays out but if we were to play out a scenario, where there are changes to the regulatory framework for the industry and I think on one hand, you have the CFPB, which oh on overdrafts could could be really positive it feels like the large banks.
Speaker Change: The lower overdraft fees and there was a wall Street Journal article in early July talking about the impact on that so would love to maybe get a little color there, but then on the more recent proposal.
Speaker Change: Seem to squeeze a number of marginal players in the space. So I just wanted to think about some of the levers at your disposal around the monetization model and then maybe the last piece of your pricing to the extent there is any changes on that front, so kind of maybe touch on both.
Speaker Change: Proposals and company implications on the business includes a lot frankly with market don't panic right now thank you.
Speaker Change: Yeah, Great Great question, Devin so on the first part around the proposed overdraft regulation, we think we sit in a really good spot there just given our lower cost to serve as we pointed out for the first time in our supplement how much lower our cost to serve as compared to traditional bank and that Wall Street Journal article you were mentioning specifically around <unk>.
Speaker Change: Francis how much it cost to banks to operate which means they have to charge a certain off of fees just to breakeven on a checking account by our calculation that's about $300 per year for a major bank to breakeven on a basic checking account. Therefore, they have to make up for that with minimum balance fees overdraft fees and so if overdraft where to go away or be significantly limited prices have to.
Speaker Change: Go up in different areas and so we think that continuing to lean in our on our lower cost to serve puts us in a significant advantage to have lower fees, yet still have great gross margins as we have today.
Speaker Change: On the proposed <unk>, yes, we did issue a statement that we don't we don't believe we're subject to this role if it were to become effective we feel very strongly in our position as an overdraft product similar to traditional banks, albeit at significantly cheaper fees and if the rule were to pass yes, I agree that it could.
Squeeze.
Speaker Change: Some players out there that are continuing to offer on licensed credit that is not regulated Dave as a federally regulated overdraft product and we spent a lot of time developing and building our business in a very compliant way leading up to going public.
Speaker Change: Thank you.
Speaker Change: Can you maybe just hit on the price elasticity as well just the overall platform. So I think that plays in here too that there's potentially other levers around the business model.
Speaker Change: The world wouldn't stay static.
Speaker Change: Yeah. Devin this is Kyle just to jump in here I think what we've shown and what our results have shown is that there is a high willingness from customers to pay for.
Speaker Change: For the product that we offer and you know.
Speaker Change: I think that given the evolving landscape we have flexibility.
Speaker Change: Should we need to evolve what we're doing from a pricing standpoint so.
Speaker Change: Yeah, I'd kind of just point back to the ARPA trends that we've seen over the past.
Speaker Change: Call. It six quarters as we continue to ramp up originations size monetization has also increased and I think that just points to the fact that customers are willing to pay for for what we're offering.
Speaker Change: That gives me a lot of confidence that that can continue to operate effectively sort of regardless of what happens within the broader kind of regulatory landscape. Yeah, I would say to just add that we do like the optional.
Speaker Change: Optionality within our fee structure, which we can continue on today with our model, but should we be pressed there. We can always move to a mandatory fee model similar to traditional banks and just charge significantly lower fees than the incumbent so either way, we think there's a lot of.
Speaker Change: A lot of flexibility on the pricing to reach our desired RP level, which we felt very confident to continue moving forward.
Speaker Change: Okay I'll leave it there, but thank you guys very much appreciate it thanks Kevin.
One moment for our next question.
Speaker Change: <unk> to going public.
Speaker Change: Okay.
Speaker Change: And our next question will be coming from Jeff Cantwell of Seaport Research, Jeff Your line is open.
Thank you Jason I mean can you maybe just hit on the price elasticity as well just the overall platform because I think that plays in here too that there is potentially other levers around the business model that the world wouldn't stay static.
Jeff Cantwell: Okay, great. Thanks, guys.
Jeff Cantwell: There is I want to touch on them, even medium term questions first on revenue growth.
Jeff Cantwell: That was 31% this quarter. It came in above your expectations can you talk about thinking further out how sustainable was call. It 20% revenue growth. What your thoughts are there second is on adjusted Ebitdas. It looks like your preliminary profitable here a third consecutive quarter of positive adjusted EBITDA. When you drill down again, we can see that.
Speaker Change: Yeah. Devin this is Kyle just to jump in here and you know I think what we've shown and what our results have shown is that there is a high willingness from customers to pay for.
Speaker Change: For the product that we offer and you.
Speaker Change: You know I think that given the evolving landscape we have flexibility on.
Speaker Change: <unk> expense was a little bit below but you're also talking about the remainder of the yourself. So can you help us understand how sustainable you think it is a.
Should we need to evolve what we're doing from a pricing standpoint so.
In terms of positive adjusted EBITDA.
Speaker Change: Kind of just point back to the ARPA trends that we've seen over the past.
Speaker Change: The next call it several quarters and what the major call outs are there and then I have some follow ups. Thanks.
Speaker Change: You know call it six quarters as we continue to ramp up originations size monetization has also increased and I think that just points to the fact that customers are willing to pay for for what we're offering.
Speaker Change: So hey, Jeff good morning.
Jeff Cantwell: Look I think we feel very confident in our ability to continue to deliver 20% plus growth for for many quarters and hopefully years years to come and so the 31% growth for the quarter was was tremendous we hope to continue that we're not committed committing to 30 plus percent growth, but we feel that the company can continue on at a very healthy trajectory.
Speaker Change: That gives me a lot of confidence that that can continue to operate effectively sort of regardless of what happens within the broader kind of regulatory landscape, yes, I would say to just add that we do like the optional.
Jeff Cantwell: Factory at these levels.
Jeff Cantwell: Supported by our low CAC levels as well.
Jeff Cantwell: As far as the continued EBITDA and Carl mentioned in his script that we plan to continue on as a positive EBITDA company. There may be some fluctuations in that based on marketing trends or we may take advantage of some some increased marketing.
Carl: To take advantage of the demand, but overall.
We do want to maintain positive EBITDA moving forward of the company here on out and not have to access any any additional capital.
Speaker Change: Okay, that's great.
Speaker Change: Very helpful. A third is on evolve in your bank partners clearly in order to talk about the first two areas. You just discussed revenue and profitability are supposed to be a view into how things are going to be maintained operationally going forward. So can you comment on your relationship evolved maybe talk about whether there's any contingency plans in place that we're finding new bank partners every time in the event something would happen that would change that relationship.
Speaker Change: Yep.
Speaker Change: Thanks.
Speaker Change: Yes. So we noted on the call that we are we are evaluating a second bank partner, we will report back when we made material. We've made material progress on our negotiations. We think that we are a very attractive partner opportunity for many of the qualified sponsor banks that are out there. There are several of them that have approached us.
Speaker Change: Conversations are ongoing at this point.
Speaker Change: And I just want to note that because of our established risk and compliance programs, we feel very well suited to be an attractive partner for these these new firms.
Speaker Change: And just to jump in there.
Speaker Change: <unk>.
Speaker Change: I would also just say that our relationship with evolve is still positive and healthy nothing about what sort of you know happy.
Speaker Change: It happened with.
Speaker Change: Consent order, there and or that some of the other challenges that theyre facing has impacted our business.
Speaker Change: Have a close relationship with their leadership team over there and are continuing to work positively.
And in that partnership so.
Speaker Change: The second bank is really just a risk mitigation.
Speaker Change: Step that we're taking but nothing about the business has been impacted in any capacity to date.
Speaker Change: I'll just add that the risk mitigation has been part of the plan for quite some time. These bank conversations have stemmed from last year. This is nothing reactionary from the most recent news as we noted in the call. We reached a significant customer scale at this point of $2 3 million paying members and it just is the right decision for rest of the house.
Speaker Change: How some redundancy set up just in case.
Speaker Change: Okay, Great and then lastly, just to follow up on Kevin's question on regulation again can you give us more color on your thoughts about the CFPB ruling seems like certain areas like chips are coming into focus the all in costs. During the brokers can you comment on those areas in terms of what your position is.
Might play out for yourselves over time thanks.
Speaker Change: But we felt confident in our ability to keep offering the fees that we have there are completely optional and theyre also within an overdraft program.
Speaker Change: As we set up the program as as an overdraft product similar to how a major banks are offering overdraft as well. So we don't think thats ruling does it doesn't apply to us.
Speaker Change: Think that the callout they have around setting see mostly aimed at people that R. R.
Speaker Change: Forcing tipping on customers, which we've never done as a business. There are several firms out there that require you to disclosure tip ahead of being approved for credit or condition. Your credit approval based on how much you tip last time, we did nothing under such and so I am actually a fan of seen regulation around that piece because there is there is it has been some nefarious activity.
Speaker Change: Which is disappointing because chipping as is in.
Speaker Change: And an optional state is a great way to monetize customers as many people can choose to pay what they can afford it and access it for free when when they can't.
Speaker Change: Okay, great. Thanks for the color guys I appreciate it.
Joe: Thanks, Joe.
Speaker Change: Our next question.
Speaker Change: Our next question will be coming from Jacob Stephan of Lake Street Capital markets. Your line is open Jacob.
Jacob Stephan: Hey, guys. Thanks for taking my question and congrats on the quarter here as well.
Jacob Stephan: I'm, just kind of wanted to start out with EMEA.
Speaker Change: Absolutely I'm, just kind of want to start out with the <unk>.
Speaker Change: Our acquisition cost and obviously, you guys said that youre not seeing any impact from the election.
Speaker Change: But maybe you know what.
Speaker Change: What is it that you're doing differently here.
Speaker Change: You kind of see that cost effectiveness.
Speaker Change: New customer adds.
Speaker Change: Well, we're continuing to see positive trajectory in our word of mouth, that's been our largest form of acquisition since the beginning of the business.
Speaker Change: We also see that.
Speaker Change: This.
That we're doing very well across our channel distribution.
Speaker Change: In the beginning of the company we were quite focused on just word of mouth in a couple of additional channels. Now we are everywhere from Tvs streaming all the social channel search affiliate, we have a very healthy distribution of all of our marketing dollars and it's given us a lot of confidence to just bad moving forward with we're seeing this reduction in CAC, which is not typical for our growth.
Speaker Change: At this stage.
Speaker Change: Got it and maybe Karl I think you pointed out that in Q3 here, we could see some elevated marketing spend but maybe help us kind of size the magnitude of the increase.
Yeah.
Karl: Look I think we haven't provided specific guidance on on what the sort of elevated level of marketing spend.
Speaker Change: We will be on a sequential basis, our <unk> relative to <unk>.
Speaker Change: I wouldn't expect anything overly dramatic.
Speaker Change: But just sort of healthy kind of quarterly ramping maybe consistent with what we saw.
Speaker Change: Last year as we kind of work through the rest of the calendar from at least from Q2 to Q3.
Speaker Change: John.
John: Just kind of taking advantage of the more attractive demand environment over the summer periods with.
John: With a go to market message, there, but I'd say overall, what's really driving our.
John: Our decision, making around increasing marketing is just the LTV to CAC trends that we're seeing our payback periods on a gross profit basis. At this point are in the four to five month range, just really attractive and.
John: You know, we're just leaning into that opportunity is to drive attractive returns on AD spend so.
John: Hope that helps to answer your question.
Speaker Change: Now in the beginning of the company we were quite focused on just word of mouth in a couple of additional channels. Now we are everywhere from Tvs streaming all the social channel search affiliate, we have a very healthy distribution of all of our marketing dollars.
Speaker Change: Yeah, Yeah that makes sense just one last one for me here.
Speaker Change: Maybe just give us some more color kind of on the updated.
Speaker Change: Pricing on the subscriber plans.
Ben: This is Ben.
Speaker Change: In the past but.
Speaker Change: Given us a lot of confidence to spend moving forward with we're seeing this reduction in CAC, which is not typical for a growth company at this stage.
Speaker Change: Any update there would be helpful.
Speaker Change: Yeah.
Speaker Change: So no official update we're still evaluating the test results and don't have a firm timeline for a full rollout. It's important to note, though that is not in any of our guys are not modeled in any upside. So we're continuing to test that but no.
Speaker Change: Got it and maybe Karl I think you pointed out that in Q3 here, we could see some elevated marketing spend but.
Karl: Maybe help us kind of size the magnitude of the increase.
Speaker Change: <unk> firm.
Speaker Change: Okay got it thanks guys.
Speaker Change: Yeah.
Karl: Look I think we are.
Karl: Havent provided specific guidance on on what the sort of elevated level of marketing spend.
Speaker Change: Thanks, a lot.
Speaker Change: And one moment for our next question.
Speaker Change: And our next question will be coming from Gary <unk> Barrington. Your line is open.
Speaker Change: We will be on a sequential basis, our <unk> relative to <unk>.
Speaker Change: I wouldn't expect anything overly dramatic.
Gary: Hi, good morning, Jason.
Speaker Change: But just sort of healthy kind of quarterly ramping maybe consistent with what we saw.
Gary: A couple of quite a guarantee or could you could you maybe.
Gary: Discuss.
Gary: The.
Speaker Change: Last year as we kind of work through the rest of the calendar from at least from Q2 to Q3.
Gary: Catch rate of the extra cash to the Dave card in terms of what Youre seeing out there sequentially and year over year.
Speaker Change: I'm just.
Speaker Change: And just kind of taking advantage of the more attractive demand environment over the summer periods with.
Speaker Change: In terms of improvement.
Gary: Okay.
Speaker Change: With a go to market message, there, but I'd say overall, what's really driving our.
Gary: Sure Gary This is Kyle happy to take your question and thanks, So much for joining this morning.
Speaker Change: Our decision, making around increasing marketing is just the LTV to CAC trends that we're seeing.
Speaker Change: So we don't disclose this.
Speaker Change: Blissett, Lee, but what we've seen over the last handful of quarters is roughly 30% attach rate from EC volume being incentive to the debit card.
Speaker Change: Our payback periods on a gross profit basis at this point are in the four to five month range, just really attractive and.
Speaker Change: So we're just leaning into that opportunity is to drive <unk>.
Speaker Change: Relatively consistent I'd say over the last two to three quarters and we do have some.
Speaker Change: Active returns.
Speaker Change: On AD spend so.
Speaker Change: <unk>.
Speaker Change: I hope that helps to answer your question.
Speaker Change: Product development stacked against that opportunity.
Speaker Change: Later this year that we hope to drive further attach rates there, which.
Speaker Change: Yeah, Yeah that makes sense.
Speaker Change: Just one last one for me here.
Speaker Change: Maybe just give us some more color kind of on the updated.
Speaker Change: Our view is that.
Speaker Change:
Speaker Change: Yes, there is an opportunity there just to help further drive card adoption as well as.
Speaker Change: Pricing on new subscriber plans.
Speaker Change: This has been a focus in the past but.
Speaker Change: Any update there would be helpful.
Speaker Change: Increase the penetration of direct deposit within our overall MTN base. So hopefully some more to come on that strategy.
Speaker Change: Yeah.
Speaker Change: So no official update we're still evaluating the test results and don't have a firm timeline for a full rollout. It's important to note, though that is not in any of our guide there is not modeled in any upside. So we're continuing to test that.
Speaker Change: Strategy and performance. There later this year, but yeah, the attach rates of roughly 30%.
Speaker Change: And we do see it definitively that when customers do attached to the Dame card that retention does go up on those customers. So our strategy is playing out well there and we want to find more ways to get people to adopt the cart and ultimately direct deposit.
Speaker Change: <unk> firm.
Speaker Change: Okay got it thanks guys.
Speaker Change: Thanks, a lot.
Speaker Change: And one moment for our next question.
Speaker Change: And our next question will be coming from Gary <unk> Barrington. Your line is open.
Speaker Change: And.
Speaker Change: Retention is going up, but obviously transaction should rise.
Speaker Change: <unk> as well correct.
Gary Barrington: Hi, good morning, Jason.
Speaker Change: Transactions and overall Arco so.
Speaker Change: A couple of quite a guarantee or could you could you maybe.
Speaker Change: That's a really healthy.
Speaker Change: Discuss.
Speaker Change: The opportunity for us to go after or is it just increases lifetime value from both the retention and monetization standpoint so.
Speaker Change: The attach rate of the extra cash to the Dave card in terms of what Youre seeing out there sequentially and year over year.
Speaker Change: Something we're really focused on and again have some product development stacked against that.
Speaker Change: In terms of improvement.
Speaker Change: Later this year that we're optimistic about.
Speaker Change: Okay.
Speaker Change: Could you also comment on your progress on.
Speaker Change: Sure Gary This is Todd ill happy to take the question and thanks, so much for joining this morning.
Speaker Change: Direct deposit of paychex to the Descartes.
Speaker Change: So we don't disclose this.
Speaker Change: Okay.
Speaker Change: Explicitly but what we've seen over the last handful of quarters is roughly 30% attach rate from E C volume being incentive to the Dave debit card, it's been relatively consistent I'd say over the last two to three quarters and we do have some.
Speaker Change: We don't disclose direct deposit penetration, we feel there's a lot of room to run on that metric still but extra cash D. Card is a good way for us to drive that initial trial of the cart and ultimately a good proxy to try to see how we're doing against direct deposits just to keep monitoring how we're doing on total transaction growth is.
Speaker Change: Product development stacked against that that opportunity.
You see a lot of a lot more.
Speaker Change: And later this year that we hope to drive further attach rates there, which.
Speaker Change: A higher percentage of people, who are direct deposit will be adding up and not total monthly data card spend.
Speaker Change: Our view is that bad.
Speaker Change: Yeah.
Speaker Change: Yes, there is an opportunity there just to help further drive card adoption as well as.
Speaker Change: Okay and then just lastly, you talked about rolling out a new underwriting model that's improve your loss ratios.
Speaker Change: Increase the penetration of direct deposit within our overall MTM base. So hopefully some more to come on that on our strategy and performance. There later this year, but yeah, the attach rates of roughly 30%.
Speaker Change: Could you maybe just I know Directionally you are not going to tell us exactly what you did but directionally can you talk about where.
Speaker Change: Where the proof points of this new model are benefiting you.
Speaker Change: Okay.
Speaker Change: And we do see it definitively that when customers do attached to the card that retention does go up on those customers. So our strategy is playing out well there and we want to find more ways to get people to adopt the cart and ultimately direct deposit.
Yeah, I mean, I think it just shows up in our 28 day loss rate performance, Gary as you can see year over year, we continue to drive down <unk>.
Speaker Change: Loss rates, which ultimately.
Speaker Change: And.
Speaker Change: Just drive.
Speaker Change: Retention is going up, but obviously transaction should rise.
Speaker Change: The economics of the portfolio.
In the context of both the rising average revenue per origination as well as the.
Speaker Change: Censored as well correct.
Speaker Change: Transactions and an overall arco so it's a really healthy.
Speaker Change: The reduction in the 28 day loss rate and ultimately our 120 day.
Speaker Change: The opportunity for us to go after or is it just increases lifetime value from both the retention and monetization standpoint so.
Speaker Change: Charge off rates, it's a really powerful equation there as we're able to sort of drive both sides of that equation by further optimizing the model so I'd.
Speaker Change: Yeah, something we're really focused on and again have some product development stacked against that.
Speaker Change: I'd say I'd point to those as the kind of proof points of how we're doing and the effectiveness of the strategy and the execution from the team.
Speaker Change: Later this year that we're optimistic about.
Speaker Change: Could you also comment on your progress on.
Speaker Change: Yes, I asked the question wrong, I guess, what I'm trying to get at is what what's changed and the focus of what Youre doing maybe just just give us an idea of how you've tweaked. This can you talk about that.
Speaker Change: Direct deposit of paychex to the Descartes.
Speaker Change: Okay.
Speaker Change: I'd say, it's just the addition of new data points into the model.
Added substantially more.
Speaker Change: And yes as data points into the overall model I think that just allow us to better risk split within the portfolio.
Speaker Change:
Speaker Change: And I'd say, that's all we're willing to share at this point is just that.
Mark: Introduction of Mark more data points.
Mark: And then just one last place largely the same.
Mark: Sorry, guys just at that.
Mark: Largely the same approach just I'd say, a more robust and comprehensive.
Model versus a.
Mark: The prior versions.
Mark: And then.
Mark: I think in the discussions with you.
Speaker Change: Uh huh.
Speaker Change: You were you were testing.
Speaker Change: With giving individuals who have a higher credit rating risk.
Speaker Change: Parameters.
Speaker Change: More bites at the Apple for extra cash I think you're allowed one of every two weeks.
Speaker Change: Is that starting to gain a little bit of traction or can you tell us how that testing is working.
Speaker Change: Yeah. So we've had an ongoing initiative here to give our higher or higher.
Speaker Change #100: We don't use credit score as a proxy, but its sort of our internal scoring based on their transaction data that our highest quality customers were giving access to a little bit of additional credit with it if they need it within the same payback period and that is working quite well we are seeing increased <unk> on those customers and.
Speaker Change #100: Increased levels of retention so overall, it's a.
Speaker Change #100: It's been a great great strategy.
Speaker Change #100: Not yet to a 100% rollout we plan to do so hopefully by the end of the year.
Speaker Change #101: Okay. Thank you.
Speaker Change #101: Yes. Thanks.
Speaker Change #101: Gary to that point, what we would expect the impact to be is just higher average origination size per customer and that driving average revenue per origination up as well so.
Gary: Yeah, just just upside from a monetization standpoint there.
Gary: Okay. Thank you.
Greg: Thanks, Greg.
Speaker Change #104: And this concludes the question and answer session as well as today's program everyone have a great day you may now disconnect.